The Constitutionality of the Consumer Financial Protection Bureau

By Kyla Eastling (CMC ’18)

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, was an attempt to regulate and reform the United States’ financial services industry as the economy began to recover from the Great Recession of the late 2000s. Title X of this act created the Consumer Financial Protection Bureau (CFPB), an agency whose conception is largely attributed to Senator Elizabeth Warren (D-MA). The CFPB regulates financial products and services with a specific mission to protect consumers and their legal interests. The most recent example of the CFPB in action is the $100 million fine the Bureau charged Wells Fargo in September. Yet, earlier this month, the U.S. Court of Appeals for the District of Columbia ruled that the autonomy the CFPB enjoys is unconstitutional. The court ruled that an additional check should be placed on the Bureau by enabling the President to remove the Bureau director.  While the Bureau looks for options to challenge this, the decision calls into question the constitutionality of the CFPB’s independence and power.

The Bureau has a general structure consisting of six divisions such as Research, Markets, and Regulations or Consumer Education and Engagement. These divisions work together to enforce existing regulations that protect consumers, as well as propose new rules. Heading all of these divisions is a director, appointed by the President and approved by the Senate, who serves 5-year terms. The directors’ terms are purposefully meant to outlast the presidential terms, further distancing the Bureau from partisan interests. The Financial Stability Oversight Council, another agency created by Dodd-Frank, does have the power to veto CFPB actions with a 2/3 vote. Though it must report to different authorities like the Senate Banking Committee, the CFPB ultimately receives its funding from the Federal Reserve, another independent government agency. Further, the Fed has little to no actual power to check the authority of the Bureau’s director, the Bureau’s mission, or its employees.

This structure has both staunch supporters and impassioned critics. Supporters argue that the Bureau’s degree of autonomy is not so extreme as to be unconstitutional. For example, they must introduce a proposed new rule with a public notice and comment period. Additionally, though the director of the CFPB enjoys far greater authority than virtually any other head of a government agency, if the authority was spread over more people, “it could end up getting captured by the industry its actually meant to oversee.” Presumably, this would dampen the Bureau’s effectiveness. Lastly, many supporters posit that much of the CFPB’s critics’ uproar is in response to the CFPB simply doing their job and going after powerful companies like Wells Fargo.

Critics often claim that the CFPB doing their job means going too far in areas where it is unclear the agency has jurisdiction. Moreover, this month’s decision focused on the power of the director. Some would likely be satisfied with the court’s adjustments to the structure. Other conservatives, however, call for the dismantling of the CFPB altogether. Some even go so far as to push to repeal the Dodd-Frank law with it.

The court’s ruling will likely be appealed given Democrats’ support for the CFPB. If the ruling is not successfully appealed before the next administration begins, the next president would have the power to seriously influence how the CFPB operates. Clinton would likely defend the CFPB’s autonomy, while Trump would like to “scale back or scrap” Dodd-Frank entirely. In either case, the CFPB will continue to be under scrutiny by the courts, potentially reducing the effectiveness of its operations.

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